Agency of Transportation outlines $61.5 million FY26 gap, proposes using JTOC appropriation and project delays

Candace Santos, chief financial officer of the Agency of Transportation, told the House Transportation Committee on Feb. 4 that the agency faces about a $61.5 million gap in its Transportation Fund going into fiscal 2026 and outlined how the administration proposes to close it.

The shortfall combines a set of one‑time revenues that are not available in FY26 with recurring cost pressures. To close the gap the administration proposed using the JTOC appropriation (an amount historically paid from the Transportation Fund to the state police), a one‑time $12.5 million transfer from the cash fund, roughly $14 million in internal reductions and $4.5 million in anticipated reversions at year end.

Santos said the Transportation Fund operating statement showed three one‑time items that created a starting "hole" of about $46 million: an FHWA administrative reimbursement estimate that has changed since last session, $12.5 million in required reversions identified at prior closeout, and a roughly $25 million transfer from the capital/cash fund that supported the FY25 budget. She said the FHWA reimbursement estimate dropped from $8.5 million to $6.3 million after negotiations, costing the agency about $2.3 million in the current year.

The nut of the agency proposal for FY26, Santos said, is to rely on a higher consensus revenue estimate (+$10.3 million), use the JTOC appropriation as an ongoing revenue source (the statute currently provides about $20.25 million to the state police), enact $14 million of division reductions and rely on $4.5 million of anticipated reversions. "We would propose that that appropriation be general funds," Santos said of the JTOC amount, adding the governor's recommendation shifts funding for the state police patrols to the general fund so Transportation Fund dollars would remain available to AOT.

Jeremy Reed, the agency's chief engineer, described how the proposed reductions would affect capital work. Reed said the scope for cuts is narrow because bridges, federal emergency and federally matched projects are largely protected; the primary projects available to delay are paving projects that do not require a federal match. He listed projects that would be affected if the agency were compelled to produce roughly $12.5 million in Transportation Fund savings, and said most projects above Essex–Fairfax on the agency list were expected to be under contract by March: Chelsea–Washington (under contract), Pinesburg–South Burlington (advertised Feb. 5), Sheldon–Enos (advertise Feb. 12), Berry City and three Battleworld projects (advertise Feb. 19), and Essex–Fairfax (advertise Feb. 19). Reed said larger reclamation projects such as Killington–Stockbridge are later in the year and have more time before contract award.

Committee members pressed the agency on risks from delaying projects. Santos and Reed warned that suspending or terminating contracts after award can incur contractor claims or termination costs and can reduce federal participation depending on project funding splits. "We would have to understand whether or not those costs would even be eligible for federal participation," Reed said, noting that an 82/18 federal/state split can multiply the state key‑fund hit.

The administration also identified $14 million in budget reductions in division budgets, plus $4.5 million of expected reversions and the one‑time $12.5 million transfer. Even so, several legislators said the agency would face a structural shortfall going into FY27 if recurring revenue sources are not found. Santos told the committee she hopes FHWA negotiations on flood‑related administrative reimbursements conclude by May and that one‑time revenues be treated as one‑time items on the bottom line rather than used for recurring balance.

Committee members asked for more specificity on what work would be delayed and on the schedule for bid advertisement and awards; Reed provided a near‑term timeline by project and said that most listed paving projects would need contracts executed by late March to preserve the program. Santos said the agency can provide the committee a crosswalk spreadsheet with line‑by‑line reductions and an updated multi‑year gap analysis.

The agency emphasized that if the Legislature required the JTOC appropriation to remain in the Transportation Fund, the agency would need to identify larger, agency‑wide reductions beyond the highway paving list; Santos said finding a further $8 million to reach the full $20.25 million would require deeper cuts across divisions. Reed warned the cuts would “cut to the bone” and hurt the agency’s ability to deliver services.

The agency plans to return with refined FHWA reimbursement numbers and crosswalk spreadsheets; Santos said she will report back after May when negotiations and year‑end numbers are clearer.

Ending

The committee did not take formal action on the presentation. Members asked AOT for a detailed spreadsheet of proposed reductions, a project timeline for contracting and a refined estimate of FHWA reimbursements so legislators can weigh whether to approve shifting the JTOC appropriation to general funds or require Transportation Fund support.